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Retirement

Can I Rollover an IRA to a Solo 401k?

An IRA is a tax-deferred retirement account for individuals. Depending on the type of IRA you choose, contributions could be tax-deductible or withdrawals could be tax-free.

There are three main IRAs that you could consider rolling over into a solo 401k.

  1. Traditional IRA - Contributions are tax-free, withdrawals in retirement are taxed as ordinary income.
  2. SEP IRA - This type of IRA is for the self-employed and business owners with few or no employees.
  3. SIMPLE IRA - An IRA for small businesses with less than 100 employees.

There's also the Roth IRA, which allows Roth contributions: you make contributions with after-tax dollars, but withdrawals in retirement are tax-free. Unfortunately, a Roth IRA is the only retirement plan that isn't allowed to be rolled over into a solo 401k.

Here's everything you need to know about IRA rollovers into a solo 401k plan.

Can I rollover an IRA into a solo 401k?

Yes, you can rollover most IRAs, including a traditional IRA, SEP IRA, and SIMPLE IRA, into a solo 401k. However, you cannot rollover a Roth IRA into a solo 401k.

Additionally, with a SIMPLE IRA, you need to have held your account for at least two years before you can do any rollovers.

IRA Type Rollover to Solo 401k?
Traditional IRA Yes
SEP IRA Yes
Roth IRA No
SIMPLE IRA Yes, after two years

How much does an IRA rollover cost?

A rollover does not cost anything. Most plan providers will not charge any fees for rolling over an IRA to a solo 401k.

Do I have to pay taxes for rolling over an IRA to a solo 401k?

No, rollovers of an IRA to a solo 401k are not a taxable event. Make sure that you rollover your IRA to a pre-tax traditional solo 401k. If you deposit into a Roth solo 401k, you could be subject to taxes.

How much can I rollover?

You're allowed to rollover an unlimited amount. You can choose to rollover just a portion or up to all of your funds in your IRA to a solo 401k.

Can I rollover assets and cash?

Rollovers of both assets and cash are allowed.

Does an IRA rollover count as contributions?

No, rollovers do not affect your solo 401k contribution limits.

How to rollover an IRA to a solo 401k

To rollover an IRA to a solo 401k, first contact your current IRA plan administrator and let them know you want to rollover your account. They'll give you a distribution form that you need to complete.

When you're completing the form, you may be able to choose whether you want to do a direct rollover or indirect rollover.

A direct rollover is the simplest option. The money in your IRA gets sent directly to your new solo 401k plan provider. Because you never touch the money, you're not at risk of paying any early-distribution penalties or taxes.

If you choose to do an indirect rollover, also known as a 60-day rollover, your IRA custodian will send you the money rather than sending it directly to the solo 401k plan provider. You then have 60 days to deposit the full amount into your solo 401k plan. The IRS has no rules against using the money for personal use during the 60-day period, making indirect rollovers an alternative option to get penalty-free access to your retirement funds for 60 days.

Note that you can only do one indirect rollover per year.

Also read: How to rollover a 401k to a solo 401k.

Withholding 10% for indirect rollovers

Another thing to keep in mind with indirect rollovers is that your plan custodian will not send you a check for the full amount of your account balance. They're required by the IRS to withhold 10% of your IRA balance in order to cover potential taxes if you miss the deposit deadline of 60 days. You're responsible for coming up with the remaining 10% from another source. If you complete the deposit within 60 days, you'll owe zero taxes and you'll receive the 10% withheld amount in the form of a tax credit.

Can I do a transfer instead of a rollover?

No, moving funds and assets from an IRA to a solo 401k must always be done through a rollover. Transfers can only be done when moving funds between the same type of retirement account. For example, moving funds from a traditional IRA to a SEP IRA could be done through a transfer instead of a rollover, since it's an IRA to IRA transfer.

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